Portugal: Lidl is preparing for difficult times
Discount Retail Chain Lidl Portugal (owned by German Schwarz Gruppe) plans to invest up to 180 million euros this fiscal year, investing in 24 stores and improving the yields of its 7,500 workers.
Lidl is "preparing for difficult times", admits Alexander Frech, Lidl's CEO. Precisely a year after taking over the leadership of the food retail chain, a pandemic breaks out and the country goes into confinement and the economy begins to skid, impacting household income. The most recent measures to contain the spread of the new corona virus also did not pass by the German discount chain that saw supermarkets close last weekend from 1 pm.
However, the discounter has, in this period of crisis, gained market share. It was the only one, together with Intermarché, to strengthen its share until August. Fruit of the bet in the expansion of the chain of stores and in an assortment more and more Portuguese, believes Alexander Frech.
In this fiscal year of 2020, which ends in February, Lidl expect to invest between 150 to 180 million euros (US$ 179 - 215M) renovating and opening 24 stores. At least four are new stores, the next one is already in December, in Braga, and, in a time of crisis, it has taken steps to ensure that, next year, the 7,500 workers in the more than 250 stores and 3 logistics centers, will have salary increases.
Measures at a time when the economic situation makes the discussion about the increase in the minimum wage, forecast for next year, even more lively. "I cannot speak for others, but I hope that our approach is a signal for other companies, who have the possibility of making this type of investment, to do so too".
At the beginning of the pandemic, the rush to stores generated record revenue levels. In September, 36 million euros (US$43M) more were spent on the discounter than a year ago. Was it repeated in the following months? Will it remain until the end of the year or is the money available shortening?
People need to eat. In the first phase of the pandemic, with schools closed, with almost everyone telecommuting, with restaurants and bars closed, there was a change in consumption for supermarkets, so the market is growing and we are seeing these numbers. If the Government's restrictions continued in this direction, of course there will be greater demand in supermarkets, but at the end of the day, it is a change within the different channels and sales. Money is getting shorter, I think it is evident, the economy is in crisis, we still don't know how big it will be, the price orientation will be increasing. Lidl will have more sales, the question will be what kind of products will we sell more than before covid.
There will be a shift towards cheaper products, but also in the investment made in security systems. At Lidl we invest a lot in the safety of employees and customers - we were among the first to introduce the visor, acrylic separations, traffic lights at the entrance to ensure that we do not reach the maximum number of customers per square meter in cleaning. Just to have an idea in these 9 months we spent 9 million just to ensure the safety of teams and customers.
In the last few years, even before the covid, we have always been growing a little above the market and gaining share. We are reaping the rewards of our investment in people, in infrastructure, in stores and in its modernization, in the assortment, in greater Portugal. We were also among the first to implement security measures. Customers appreciated that, so we’re doing better than others.
Lidl Portugal will invest between 150 to 180 million euros
He says that the share gain is also due to the investment made. In the past fiscal year they estimated to invest 150 million, 20% more than in the previous year. In fact, we estimated to invest 150 million last fiscal year, but ended up investing 180 million. Some opportunities have arisen to invest in the future, in sectors such as Lidl we have to take positions now, to reap benefits in a few years' time, it is the basis of our market growth.
It was a mix of logistics, infrastructure and stores. We have major investments to strengthen our logistics structure, because of our growth and future expectations we have to ensure that the logistics are prepared. We ended this year with the "go live" of the center in Torres Novas, the conclusion was in May, more or less at the end of last fiscal year. And Santo Tirso started last year, we are in the post-start phase and the investment was divided in the years 2019 and 2020. This was one of the reasons why we increased the investment and, on the other hand, we found some opportunities to invest in the portfolio stores, to be closer to our customers.
The investment plans for this fiscal year 2020 are to have, more or less, this level of investment in terms of value and number of interventions in stores. We intend to intervene in 24 stores, the same as last year. The start of the fiscal year was challenging in terms of construction, obtaining construction materials, we had a better time in the summer and now we are facing some unknowns again, so I cannot give you a firm answer. But, with what has already been done and what is to come, we will end up with the same level as last year. We will invest between 150 and 180 million euros.
Competitor Discount Retail Chain Aldi announced 60 million in a logistics center in Moita, looking for a location in the North, where they want to open 25 stores next year and open 100 in five years, investing another 45 million. For those who were almost silent for so long, only this year launched the first TV campaign, it seems to be posing a challenge to the market.
From an economic point of view, I think it is good to invest in Portugal now. If you compare Aldi's numbers with Lidl's, we are prepared. Lidl has been talking to the Portuguese for 25 years, we know what the client expects of us, we just have to continue this long-term relationship with the client with a Portuguese base. Lidl represents good quality, a good basket where you find what you need, we are also focused on organic products, we are following the needs of customers and, therefore, we are prepared for whatever the competition may present us.
Seeing our market share and our performance, I think we did our job. We can talk about Aldi, Mercadona, Continente, but if we do our homework, if we are focused on our mission, we have nothing to fear. Just do our job and continue on our way. That's what we're doing.
In times of crisis, consumers want to buy national products. Continente, Pingo Doce, Intermarché reinforced purchases, Auchan bought another 21.2% tonnes. The Government appealed to the sector to serve as an outlet for small producers. What are the Lidl numbers?
I spent a lot of time in stores, to understand teams, customers, needs, see the competition. I have already visited 200 of our Lidl stores, I think I will visit them all this year. The first was in Arganil, one of our first stores. The theme of regionality came up every time I went to a store, people are always proud of their region, they often invite me over for a coffee and find out what the specialty of pastry is. And they question why we cannot have these regional flavors? Why can't we have these Arganil flavors in Lagos or Porto? It was always on my mind and, as an idea to help the national economy, we launched the project A Minha Terra a few weeks ago, giving small producers the opportunity to present their products to sell in stores. We received 180 applications, we are in the final pitch presentation phase, we do not know the results yet. It was a success and we will have a chance to have or products in stores in the region or promotion with these items. It is a good way to support smaller local suppliers who would not have a chance to enter this retail.
In the first half of 2020, there was an increase of 15%, in value, compared to 2019. In the fixed assortment we have about 2,000 SKU's, of these 850 SKU's are of Portuguese origin. In fruits and vegetables, when there is a chance of having a partner, we look in Portugal; another major focus on portugality is meat (95% is Portuguese); last year we "exported" 150 million euros, two million more than the previous year, we bought more than 70% of citrus fruits from the Algarve and started exporting organic carrots, as well as oranges and lemons to Germany. For this fiscal year I still don't have the numbers, but I haven't heard any negative news. I do not expect a decline, but if there is growth it is difficult to predict.
For Lidl Online we have to wait for the right moment to enter the market with a solution that is for the long term and the future. The Portuguese "discovered" that they could buy from us online. In 2018 they started with a pilot in Madrid for the non-food area - selling clothes, electronics and there was talk of expanding to Portugal.
If we take into account the market growth in terms of store business, we see that there is still a need for customers to make purchases physically in stores. The Portuguese have a close relationship with people and they need to go to the store, they need to be inspired. Our future strategy was, and will be, physical stores, there is still potential for growth. We know the challenges of online business, especially in terms of freshness and quality, sustainability, logistics ... All big questions. We are monitoring waiting for the right moment until all these questions are answered. I don't know when that future will be, for now, let's focus on the standard retail.
The good thing about being an international discount chain is that we don't have to have 32 tests in 32 countries. We are benefiting from that experience. In Spain we work with Glovo, in Italy with Supermercato24, there are some partnerships going on. We have some small projects within the group, so we are looking everywhere. We have to wait for the right moment to enter the market with a solution that is for the long term and the future.
In order to have a long-term relationship, which we want, since we invest in training - we have to offer prospects, which may be related to development opportunities: 65% of our management team started as an operator in a store or in a logistics center. It is not something that is on paper, it happens every day. People realize that there is a chance of promotion which leads to greater motivation and satisfaction including salary.
The government's outlook for 2021 is a recession of 5,4%, a deficit of 4.3%, which consumption is expected to increase by 3,9%, with the unemployment rate of 8,2% expected to fall 1,7%. What is your outlook for the next fiscal year?
Making a prediction is very difficult, I can say what we have done in recent years and I think we will continue with this approach. We are preparing for the worst case scenario and help